A former Merrill Lynch advisor filed a category motion go well with in opposition to the wirehouse, alleging it violated federal legislation by withholding deferred compensation pay.
California-based Kelly Milligan filed the go well with in North Carolina federal court docket, alleging that he left $500,000 in deferred compensation on the desk when he departed Merrill Lynch in 2021.
He filed the category motion go well with on behalf of extra advisors he claimed have been in the same predicament, together with his lawyer estimating over 1,000 others additionally misplaced their deferred compensation.
Based on Milligan, the wirehouse invoked its “Cancellation Rule,” by which Merrill would purportedly mandate advisors forfeit the compensation in plan accounts in the event that they left the agency earlier than a “vesting” date (a contractually allotted period of time the worker should be with the corporate earlier than benefitting from the plans).
Based on the grievance filed late final month, advisors would mechanically allocate a portion of their commissions annually to the “WealthChoice Contingent Award Plan.” These commissions can be allotted into particular person plan accounts, which might “vest” inside eight years. Based on the grievance, at the very least 5% of an advisor’s pay can be withheld yearly.
Milligan argued the plan was an “worker profit pension plan” as a result of it resulted in a deferral of staff’ revenue that prolonged to that worker’s termination (and even previous it). Subsequently, it was protected beneath the Worker Retirement Revenue Safety Act.
Based on the grievance, the overall of an advisor’s deferred compensation from the earlier yr can be granted to that advisor as an annual “plan award,” with an account for annually’s deferred compensation. Advisors may make investments their accounts in 401(okay)s, with account values tied to funding efficiency.
Nonetheless, in response to Milligan, Merrill denied him his deferred compensation when he left the wirehouse in 2021, invoking the aforementioned “Cancellation Rule.” He requests that the court docket affirm his plan was lined beneath ERISA, making Merrill’s makes an attempt to disclaim the cash unlawful.
Doug Needham, an lawyer with the legislation agency Motley Rice representing Milligan in court docket, instructed WealthManagement.com that Merrill’s plan violates ERISA by mandating advisors forfeit their deferred compensation in the event that they go away for an additional firm.
“We consider the ‘cancellation rule’ violates ERISA each time Merrill Lynch invokes it and forces an advisor to forfeit deferred compensation,” he stated. “And as a sensible matter, advisors leaving to affix a brand new firm like Mr. Milligan did is probably going the commonest purpose that Merrill Lynch invokes the cancellation rule.”
After the vesting date, Merrill is meant to pay the advisor the overall deferred compensation. Nonetheless, Merrill can cancel the account steadiness if the advisors’ employment at Merrill ends earlier than the date in query (although there are exceptions for dying, incapacity and layoffs, offered the advisor doesn’t solicit agency staff or shoppers throughout that point).
The rule doesn’t apply if an advisor retires (so long as they don’t “interact in competitors” with the agency earlier than the vested date), in response to the grievance.
Milligan confused that deferred compensation awarded after the vested date couldn’t be construed as a “bonus” (which might put it exterior of ERISA protections), arguing advisors don’t need to do something past what’s anticipated of them to earn the commissions that make up the allocations of their plan (i.e., they don’t need to hit specified income targets).
“Certainly, (advisors) mechanically obtained deferred compensation with the very first greenback of commissions they earn as part of their compensation construction,” the grievance learn. “On condition that (advisors) are anticipated to generate income, their compensation for performing this core operate—on the absolute minimal stage—will not be, and can’t, be a bonus.”
Needham underscored this level, anticipating Merrill to attempt to “keep away from legal responsibility” by arguing that the cash was a bonus and thus not protected by ERISA.
“ERISA does, nonetheless, shield deferred compensation like the cash that Mr. Milligan and others misplaced after they modified companies,” he stated.
Financial institution of America Merrill Lynch didn’t reply to remark previous to publication.
Attorneys from a number of companies, together with Motley Rice, Ajaimie LLP and Izzard, Kindall & Raabe, characterize Milligan. Nonetheless, different companies are additionally sniffing round; final week, securities legislation agency KlaymanToskes urged Merrill brokers with damages exceeding $100,000 to “discover all their authorized choices.”
